The American Civil Liberties Union has sued the Federal Housing FinanceAgency seeking information about the FHFA's position on the useof eminentdomain to reduce the principal amounts of mortgage loans.

The organization brought the suit in U.S. District Court for theNorthern District of California under the federal Freedom ofInformation Act, contending that it had asked the agency about howit has developed its position on the use of eminent domain toreduce mortgage principal and, particular, about the role largerbanks might have played in developing that policy.

“The FHFA has taken an aggressive stance on this issue in a waythat has harmed minority communities. The public deserves to knowwhy,” said Linda Lye, staff attorney with the ACLU of NorthernCalifornia.

The ACLU said that it first asked for the information in Octoberand, after receiving one response from the agency, have notreceived any more.

In the wake of the city of Richmond, Calif., beginning to take steps toward usingeminent domain to reduce the principal on some mortgages, the ACLUcharged the FHFA threatened legal action against Richmond or anyother city that uses eminent domain to reduce mortgage principalsand by threatening to deny credit to people seeking mortgages inthose communities.

This was particularly odd, the group charged, since Richmond andother locales had made it clear that they were not looking at usingeminent domain to obtain any loans held by Fannie Mae or FreddieMac but were looking to use the tactic only to help homeownerswhose loans had been packaged into private label securities andwhich were not sold on FHFA-regulated markets.

“The FHFA's statement is particularly difficult to understand inlight of the fact

that Richmond, and all other municipalities considering usingeminent domain for principal reduction, have stated that they willuse their eminent domain authority only to target loans held inprivate-label mortgage-backed securities,” the group wrote in itscomplaint.

“By definition, the loans that the government sponsoredentities, supervised by the FHFA, guarantee and securitize arepackaged into agency mortgage-backed securities, and are thereforenot subject to seizure under the eminent domain programs underdiscussion,” the ACLU said.

“Communities are trying to get back on their feet after one ofthe country's most devastating economic recessions,” said AdyBarkan, staff attorney with the Center for Popular Democracy, oneof the groups on whose behalf the ACLU brought suit. “Strugglingfamilies need options, not threats. As cities explore solutionsthat can work for them, the FHFA should be encouraging programs toend the foreclosure crisis, reduce debt, and rebuild our economy,not clamping down on them. And it should be transparent with theAmerican people about its relationship with the financialindustry,” Barkan said.

The FHFA declined comment on the case, citing its policy of notcommenting on pending litigation.